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15/22 2 FLOOR ASHOK NAGAR ND-18 (PH- 55711031, 9810378235)
CLASS: XII ACCOUNTANCY Page 1 of 4
Definition of Partnership
According to the Indian Partnership Act, 1932 (Sec. 4), “Partnership is the relation between
persons who have agreed to share the profits of a business carried on by all or any of them acting
for all.”
According to Prof. L.H. Haney, “Partnership is the relation existing between persons,
competent to make contracts who have agreed to carry on a lawful business in common with a
view to private gain.”
The persons who have entered into a partnership with one another are called individually
“partners” and collectively “a firm” and the name under which the business is carried is called “the
firm’s name”.
(2) Super profit method. The excess of average actual profit over the normal profit is
called super profit. In this method, goodwill is valued on the basis of super profits earned
by firm and the same multiplied by the number of years purchased. Steps are as follows:
(i) Calculation of average profits (already explained).
(ii) Calculation of normal profits:
(iii)
Normal Profits = Capital Employed × Normal Rate of Profit
100
If capital employed is not given, then it will be calculated by using accounting equation, i.e.,
Capital = Assets – Liabilities
(iii) Calculation of super profits:
Super Profits = Actual average profit – Normal profits
(iv) Valuation of goodwill:
Goodwill = Super profits × No. of years’ purchased
(3) Capitalisation method. This method is based on the capitalized value of the firm which
is calculated on the basis of capitalization of actual profits on the basis of normal rate. Of
profits. under this method goodwill can be calculated in two ways:
(a) Capitalisation of Average Profits – Under this method, to calculate the value of
goodwill actual capital employed is deducted from the capitalized value of the
average profits on the basis of normal rate of profits. Formula is as follows:
(b) Capitalisation of Super Profits. Under this method goodwill is calculated by capitalizing
super profits by the rate of normal profits. Formula is as given below:
Super Profits × 100
Normal Rate of Return